Cuba: The revolution will not be energized

Cuba: The revolution will not be energized

No oil find means no easy way out for the island's economic woes.
Nick Miroff November 4, 2012 05:00

HAVANA, Cuba — Cuba's long, costly quest for socialism-with-oil appears
to be ending in little more than a string of empty holes across the
bottom of the Gulf of Mexico.

The latest attempt to strike crude in the deep waters off the island's
northwest coast has come up dry, the Cuban government announced Friday,
and industry experts say it'll likely be years before another rig tries
there again.

The bust is a relief to opponents in Florida who feared a cash windfall
for the communist government, and tourism officials in the state who
have been dreading the possibility of a Cuban spill fouling their beaches.

But the news is a gut-punch to Cuba's hopes for an oil injection to its
faltering economy, and President Raul Castro's attempt to save his older
brother Fidel's socialist system by introducing limited market
principles and new sources of job growth.

Cuban officials recognize that the country's overwhelming energy
dependence on the Soviet Union led to disaster when the USSR crumbled.
But Cuba's creaky, inefficient electrical grid continues to rely almost
entirely on imported oil and diesel fuel, most of which is sent today by
energy-rich ally Venezuela.

Venezuelan President Hugo Chavez provides the Castro government with
about 100,000 barrels of oil per day on highly favorable trade terms,
roughly enough to cover two-thirds of Cuba's energy needs. He was
re-elected to a new six-year term last month.

But Cuba was counting on an oil find in local waters to trigger a rush
of new foreign investment, and the ability to renegotiate some of its
debts. Now, ambitious plans for new petroleum storage and refining
facilities on the island may be scaled back, since they were partly
contingent on the rise of a Cuban oil industry.

"It's bad all the way around," said Jonathan Benjamin-Alvarado, a
professor at the University of Nebraska at Omaha who tracks Cuba's
energy sector.

"Cuba hoped the investment would help to advance energy development and
serve as a catalyst for broader economic expansion," he said. "I am
certain that this is devastating news for all the interested parties and
almost certainly chills the investment environment moving forward."

In the next few years, 81-year-old Raul Castro is looking to move
hundreds of thousands of state workers off government payrolls and into
more productive industries that could drive economic growth. The
island's tourism industry continues to expand, but revenue from
commodities like nickel and sugar has been sagging.

Cuba's prospects for big oil were sufficiently attractive that nearly a
dozen foreign companies signed deals with the Castro government to
explore offshore in the Cuban-controlled waters of the Gulf of Mexico.

More from GlobalPost: Cuba watches 2012 US election closely

But drilling for oil is often a game of miss-and-miss, analysts say, and
the failure of several foreign firms to reach commercial quantities of
crude in Cuban waters is not proof such reserves are nonexistent.

The Cuban government's statement Friday didn't say the country was
giving up on its search even though the latest well — opened in
partnership with Venezuela's state oil company PDVSA — was another dud.

"Although this well does not offer possibilities for commercial
exploitation, the results obtained in the exploration will permit the
guidance and expansion of the operations on the blocs of Cuba's
Exclusive Economic Zone in the Gulf of Mexico," said a statement from
government oil firm Cubapetroleo that ran in the Communist party
newspaper Granma.

But although Cuba and its partners have the will to keep digging, they
won't have a rig, oil industry experts say.

The rig they've been using — the Chinese-built, Italian-owned Scarabeo 9
— is departing for most promising waters in Africa, according to experts
consulted by Reuters.

At a rental cost of more than $500,000 a day, Scarabeo 9 is the only rig
in the world built to comply with US trade sanctions against Cuba that
mandate no more than 10 percent American technology may be used.

Without the Scarabeo 9, says former oil executive Jorge Pinon, Cuba will
be "out of the 'game' for a long time with no 'shovel.'"

Cuba's best prospects for developing new oil resources now rest with
Russian state firm Zarubezhneft, which has plans to explore in shallower
waters using a Norwegian-built platform. But that rig will operate in an
area of the Gulf that offers far poorer prospects for a quality find,
and there has been no confirmation that it will arrive this month as
previously announced.

Without an oil find to give Cuba a quick financial boost, communist
authorities may need to look onshore for new economic prospects, further
liberalizing the island's small private sector and offering bigger
incentives to foreign companies that might invest in agriculture,
tourism and other proven moneymakers.

More from GlobalPost: Cuba Kapital, an in-depth series on Cuba's
economic reform
http://www.globalpost.com/series/cuba-economic-reform

http://www.globalpost.com/dispatch/news/regions/americas/cuba/121103/castro-offshore-oil-exploration-gulf-venezuela-chavez